Credit environment risky for credit lenders

A recent business breakfast hosted by SAS Institute highlighted the fact that credit lenders and consumers alike are facing hard times.

"On average South Africans spend 80% of their disposable income on servicing their debt. Of the cases under debt counselling it is estimated that around 67% are non-performing, with an average consumer owing to eight credit providers at any one time," says Dr Tjaart van der Walt, CEO at the National Debt Mediation Association (NDMA).

Noting that South Africans' bad debt and defaults on payments spell bad news for creditors and debtors across the board, Van der Walt also emphasised that the new National Credit Act (NCA) protects consumers from being targeted by credit providers, as long as consumers utilise the process as envisaged under the NCA. Within the next few months, the NDMA will pilot a voluntary process of debt mediation.

"We see this programme as assisting with the management of over-indebtedness, and complimentary to the current, formal debt counselling process. Currently there are around 20 000 in-debt cases in the process with debt counsellors, with an estimated amount outstanding around R5 billion," adds van der Walt.

"Many debtors have not sought debt counselling, and when they do it's often too late as the legal process has already begun."

The current situation has been highlighted in the media and calls for both consumers and credit providers to take responsibility and return to the basic rules of budgeting and lending. The NDMA - which has representatives from several retail associations - is the first step in a voluntary credit provider body committed to providing over-indebted consumers with alternative assistance.

"Conventional risk models are often not forward-looking enough and fall short of risk expectations. With interest rate hikes, sub prime losses at an all time high and recent market moves all contributing to the failure of many credit risk models, now is the time to invest in your risk strategy," says Andr'e Zitzke, solutions specialist at SAS.

Alongside van der Walt, the breakfast also hosted Bevan Smith, senior manager OpRisk at IQ Business Group, as well as Prof Machiel Kruger, Head of SASLab Centre for Business Mathematics and Informatics.